Haris Naved Ahmed ERP 08708 | Consumer

Behavior |

WAC-WIPRO Consumer
Care Merchandising for
Success
ASSIGNMENT

WAC-WIPRO Consumer Care Merchandising for Success

Question
How is VM related to channel management? What are the benefits of VM for
the manufacturer and channel members? What are the pros and cons of
operating the VM model through the distributor and manpower models?
Calculate some of the key parameters that will help in comparing these
models?

Answer
Visual merchandising (VM) is a silent selling technique that helps to reduce the
employee mix and increase per square feet returns and can further helps in
reducing marketing budgets. The activity and profession of developing the floor
plans and three-dimensional displays in order to maximize sales.VM is the use
and manipulation of attractive sales displays and retail floor plans to engage
customers and boost sales activity. In visual merchandising, the products being
sold are typically displayed in such a way as to attract consumers from the
intended market by drawing attention to the product's best features and benefits.
The overall purpose of visual merchandising is to get customers to come into the
store and spend money. Visual merchandising includes how merchandise is
presented as well as the store's total atmosphere. Channel management is a
technique for selecting the most efficient channels or routes to market for
products and services, and deriving the best results from those channels by
applying appropriate financial, marketing or training resources
VM is a mean of effective channel management i.e. reaching the large consumer
base by presenting products in such a way that it motivates the consumer to
spend money and buy the product.
Distributor Model
PROS
The investment required in this model
is skimpy. The recruitment can be
done by the distributor himself. The
investment can be further curtailed if
the distributor makes a good deal of
business by sharing the expenses.

CONS
The distributors will not undertake
initiatives as they are not going to
reap direct benefits. The indirect
benefits are not so significant and
palpable to the distributors. As sales
are the primary function of the
distributors they shall not pay much
heed to the promotional activities.
HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

Territory allocation of the sales team

will be a cumbersome job and quick
replacement in case of attrition
doesnt seem likely.

Manpower Model
PROS
The hiring process will be easier as
filtration is done by the third party. As
the team of team leader and
merchandisers are in the payroll of the
agency, the process will be easier.
The agency shall ensure quick
replacement of merchandisers in case
of attrition or complaints from the
company.

CONS
The expenditure will be very high. The
agency may not take the ownership
as its role is limited to staffing.
Territory division and other
cumbersome operational works shall
remain the onus of the sales team.
The key parameters to consider while
evaluating the two models are:
-Number of Merchandizer required
-Costs associated with each
Merchandizer

With the given information in case & calculation of the parameters mentioned
above, cost per store associated with visual merchandizing under distribution
model is Rupees 72 per month & Manpower Model is Rupees 113. (Refer
Annexure 1 for computations)

Question
Compare the proposals of the two outsourced agencies. Calculate some of
the key parameters that will help in comparing these agencies.

Answer
MarginDizes app runs on low-end Android phones, which makes reporting
hassle-free, and the web-tool makes real-time reporting as easy as you please,
thereby providing clients premium services for an affordable price. The call
efficiency per merchandiser per day is higher for MarginDize. And its edge over
its counterpart in terms technological advancement, brings down the number of
Data Entry operators and Operational Executives required. Although MarginDize
does a better job in terms of other charges and expenses, comprising average
monthly expense, real-time reporting cost, and agency fee, it believes in the
philosophy of paying its employees better than industry standards, to build loyalty
HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

and a sense of belonging, which makes much sense. As it is comparatively new

to the business, a great sense of ownership shall rule, as much is at stake with
the project. Put in a nutshell, the average monthly fixed cost to the company per
store may not project a rosy picture, so far as MarginDize is concerned. At the
same time, lack of relevant industry experience, seems to be the Achilles heel, in
their contender ship. But as discussed above, these factors might indeed be
blessings in disguise. On the contrary MarginDize is way ahead of its competitor
in terms of real-time data capture capabilities and reporting mechanisms to
facilitate robust daily auditing
mechanims and superior operation control. Considering all these nitty-grittys,
MarginDize looks likely to gain the upper hand over above VisuaLeverage, and
win the project.
The proposals from two potential service providers, MarginDize and
VisuaLeverage, are to be appraised on the basis of four key parameters:
1. Monthly fixed cost to the company per store.
2. Real-_me data capture capabilities
3. Relevant industry experience
4. Reporting Mechanisms
Based on above parameters, cost per store from each service provider has been
evaluated. Margindize
services cost around Rupees 150 per store and Visual leverage Rupees 176 per
store each month. (Refer Annexure 2 for computation)

Question
Under what sales value (or other) conditions is the movement from the
distributor model to the manpower model and further on warranted?
Develop a sensitivity model based on the information given in the case.
Assume that the average profit margins on secondary sales (net of
distributors margin to the retailer) is 15% for WCCLG, that the retailer
margin is 10%, and the average credit to the retailer is Rs.2,000 at a given
point in time.

Answer
To determine the sales value (or other) conditions, the movement from distributor
model to the man power model can only be suggested if the VM model generates
profit in excess of its cost i.e. break-even point whereby cost incurred is equal to
profit generated.
Under the assumption of WCCLG profit margin of 15%, retailer margin, 10% and
VM expenses per store each month in Distributor & Manpower model and
agency comparison we carry out the sensitivity analysis.
HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

The minimum sales value is calculated through the formula:

Sales=Additional Profit/Profit Margin of WCCLG.
With calculations attached in Annexure 3, fol. has been concluded:

Achieve a break-even profit, sales of at least Rs.535 per store is be

achieved per month to make the Distributor model acceptable.
Achieve a break-even profit, sales of at least Rs.834 per store is be
achieved per month to make the Manpower model acceptable.

Achieve a break-even profit, sales of at least Rs.1,111 per store is be

achieved per month to make the MarginDize model acceptable

Achieve a break-even profit, sales of at least Rs.1,304 per store is be

achieved per month to make the Distributor model acceptable.

Question
Develop an action plan for Gupta based on the information provided.
Answer
With the four options, including two models where either the company or its
channel partners manage the elements of VM, and two models where VM is
outsourced to specialized agencies, Gupta action plan can be as follows based
on the computations made earlier

Use Manpower model by outsourcing the VM activities to Margindize. This

is being suggested as cost per store for Margindize is Rs.150 each month
against a budget of Rs.175, the major management functions i.e.
operational management, analytic and reporting and HR management
harmonize together that will eventually increase effectiveness. Further, by
outsourcing the VM activity, company will be able to utilize its time in other
areas of importance that require attention.

Further, to check the success of the suggested plan, a pilot program on

selected stores should be run for at least 8-10 weeks with a dedicated
team closely monitoring the process for all high & low points.

HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

Question
Consider a scenario where the increase in sales per outlet is not able to
justify the increase in costs per outlet when the model moves from
distributor to agency. Should the agency model be discarded in such a
situation?

Answer
The objective of Visual Merchandising is essentially increasing sales for the
company. If the increased cost of moving from distributor model to outsourcing
the VM activities to an agency results in higher cost per outlet as against a sales
per outlet, the agency model should be discarded and the company should
reconsider its strategy for VM activities.

HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

Annexure-1
Total Merchandizer Requirement
Monthly Budget per store (PKR )

175

Number of Stores

15000

Total Monthly Budget

2,625,000

Total Yearly Budget

31,500,000

No. of Retail Stores

15000

No. of visits per store per month

Total No. of Visits/month

2
30000

No. of visits/Merchandiser/day

15

No. of working days/month

24

No. of visits/Merchandiser/month

360

No. of Merchandisers required

83.33

Distributors Model
Expenses Rs
Salary/Merchandiser/month

7,000

Travelling Allowance/Merchandiser/ month

800

Consumables cost/month

20,000

Sales kit bag cost /merchandiser/ 6 month

500

Distribut
or Size

No. of
Distribut
ors

Merchan
diser for
each
distributo
r

Total no
of
Merchan
diser

Salary /
Cost per
month

Travellin
g cost
per
month

Sales kit
bag cost
per 6
months

Large

29

58

406,000

46,400

29,000

Medium

39

39

273,000

31,200

19,500

Small

38

38

266,000

30,400

19,000

Total

135

945,000

108,000

67,500

Distributor Model

Rupees
HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

per store cost

Total Yearly
Expenses

13011000

Cost per
Store/year

867

Cost per
Store/month

72

Annexure-2
Man Power Model
No. of Merchandisers Required

84

No. of Merchandisers/Team Leader

12

No. of Team Leaders Required

Salary/Merchandiser/month

12,000

Salary/Team Leader/month

20,000

Salary Cost per month

1,148,000

Travel Expenses per month

200,000

Consumables cost/month

20,000

Sales kit bag cost /merchandiser/ 6 month

500

Sales kit bag cost / 6 month

42000

Agency Fee

15%

Service Tax

12.36%

Agency Cost/month

172,200

Service Tax Cost/month

141,893

Yearly Expense

20,269,114

Cost per Store/year

1,351

Cost per Store/month

113

Merchandiser cost

Margindize

Visualeverage

1027000

924000
HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

Team Leader Cost

126,000

105000

DEO cost

50,000

80000

OE Cost

75,000

115000

NMO Cost

18000

19000

Program Manager Cost

50000

52000

Avg Monthly Expense

400,000

500000

Repor ng cost

10,000

300000

Cell phone Cost

400000

800000

Agency fee

168250

194250

Service tax

166366

160062

a) Back-end office expenses

Warehouse

60,000

60000

Maintenance

30,000

30000

b) Consumables

20,000

20000

c) Kit bags Cost (yearly)

79000

84000

Training Cost (yearly)

100000

100000

Total Yearly cost

26986387

31695744

In Millions

27

32

Cost per Store/year

1,799

2113

Cost per Store/month

150

176

Annexure 3
SENSITIVITY ANALYSIS
WCCLG Profit Margin

0.15

Retailers Margin

VM Expense per store

per month
(Distributor's Model)

72

VM Expense per store

per month
(Manpower's Model

113

VM Expense per store

150
HARIS NAVED AHMED

WAC-WIPRO Consumer Care Merchandising for Success

per month
(MarginDize)
VM Expense per store
per month
(VisuaLeverage)

176

Model

Additio
nal
Profit
per
store
per
month

WCCLG
Profit
Margin

Sales Value
for WCCLG
(15% profit
Margin)

Retailer
Profit
Margin

Sales Value
for Retailer
(10% profit
Margin)

Distributor Model

72

15%

482

10%

535

Manpower Model

113

15%

751

10%

834

Agency Model
(MarginDize)

150

15%

999

10%

1,111

Agency Model
(VisuaLeverage)

176

15%

1,174

10%

1,304

HARIS NAVED AHMED